The government will increase taxes on beverages including beer, soda and bottled water June 1 as part of efforts to increase revenue after suffering its first sovereign credit downgrade in a decade last month. The World Cup starts June 12, and the government forecasts 600,000 foreign tourists will attend games scheduled to be played in 12 Brazilian cities.
The tax plan, which will be announced today, will raise 1.5 billion reais ($671 million) by year-end and will only have a minimal impact on inflation, Carlos Alberto Barreto, the head of the federal tax agency, told reporters in Brasilia yesterday. Ambev may decide to raise prices to offset the higher levies on brewers, according to Rodrigo Martin, an analyst at Quantitas Asset Management.
“What a bad surprise for the company,” Martin said in a phone interview from Porto Alegre, Brazil. “Ambev had said it was not planning to raise prices before the World Cup, but now it may have to. And we don’t really know if the level of the demand will allow an increase.”
Ambev’s revenue grew 8 percent last year to 34.8 billion reais ($15.6 billion), according to data compiled by Bloomberg.
Standard & Poor’s downgraded Brazil’s credit rating one step in March to BBB-, its lowest investment-grade rating, with a stable outlook. The move ended a decade-long stretch of upgrades for the world’s second-largest emerging market. S&P said sluggish economic growth and expansionary fiscal policies are fueling an increase in the country’s debt levels.
Since May 2012, the beverage industry has raised beer prices 23 percent and soda prices 19 percent, according to Barreto, and the tax increases are meant to reflect the current level of prices charged by companies.
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